Initially announced in the 2015 federal budget, the Department
of Finance released draft legislative proposals on July 31, 2015
that provide certain non-resident employers an exemption from
Canadian payroll withholdings on payments to their non-resident
employees temporarily working in Canada. The proposed legislation
is effective for payments made after 2015.
Non-resident employers are required to withhold Canadian payroll
remittances (Regulation 102 withholdings) for any employees
physically working in Canada, regardless of whether the employee is
a Canadian resident or a non-resident. The requisite payroll
withholdings and rules are generally the same deductions that
Canadian resident employers must remit and abide by. Before 2016,
there was no de-minimis rule, such that even if an
employee only spent one day of work in Canada, Regulation 102
withholdings would still apply. This presents an additional
obligation for non-resident employers who are already required to
deduct and remit payroll withholdings for their employees in their
A non-resident employer can apply for a Regulation 102 waiver in
order to avoid the requirement to withhold payroll deductions at
source. All Regulation 102 waiver applications must be sent to CRA
30 days before the start of the employment services or the first
payment, which can prove to be impractical, given that employee
travel is often arranged at the last minute and obtaining the
appropriate information can be time consuming. If a waiver is not
obtained, a non-resident employee can still claim relief under a
tax treaty by filing a Canadian tax return to obtain a refund of
the Canadian payroll deductions.
Under the July 31 proposed legislation, a "qualifying
non-resident employer" is exempt from the Regulation 102
withholding requirements with respect to amounts paid to a
"qualifying non-resident employee."
Qualifying non-resident employer
A "qualifying non-resident employer" must be a
resident in a country with which Canada has a tax treaty and
certified by the Minister of National Revenue at the time of
payment. Note that a U.S. LLC that is fiscally transparent may not
meet these requirements.
To obtain certification, a new prescribed form, RC 473 (available here), will have to be completed and
sent to CRA at least 30 days before a qualifying non-resident
employee starts providing services in Canada. Although the
certification will generally be valid for two years, it may be
revoked if the employer fails to comply with Canadian tax
obligations. Failure to be compliant in prior years will not
preclude eligibility on a go-forward basis.
Qualifying non-resident employee
A "qualifying non-resident employee" must meet all the
Resident in a treaty country at a
time of payment
Exempt from Canadian income tax under
a tax treaty
Works in Canada for less than 45 days
in the calendar year that includes the time of payment, or is
present in Canada for less than 90 days (including non-work days)
in any 12-month period that includes the time of payment
Even if the conditions for a qualifying non-resident employer
and qualifying non-resident employee are met, the qualifying
non-resident employer will still be required to submit T4
information returns with related supplementary slips, (although a
supplementary for a qualifying non-resident employee whose total
taxable income earned in Canada under Part I of the Income Tax Act
is less than $10,000 is not required). Employers will continue to
be liable for withholdings with respect to non-resident employees
found not to have met the conditions of being a "qualified
Given the new requirements, employers will need to identify and
track the residency status of employees and track and manage the
number of days employees are physically present in Canada to
benefit from the new Regulation 102 exemption. Furthermore, the
proposed legislation does not provide relief from compliance with
the information reporting requirements which remain in effect.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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